Factors Determine Islamic Banking Performance in Malaysia: a multiple Regression Approach

Gross Domestic Product 

It is a monetary value of all of the finished goods and services produced within a 

country's borders in a specific time period. Computation of GDP consists of private and 

public consumption, government outlays, investments and exports less imports. Hassan 

and Bashir (2003) stated that the co-efficiency of non-interest earning variable interacted 

with GDP is positive and statistically significant in the ROA and ROE. The relationship 

of GDP with other variables is strong. Furthermore, when the Loan/TA is interacted with 

GDP per capita, they find significant positive impact in ROA and ROE. Kunt and 

Huizinga (1998) found that bank/gdp ratio has a significantly negative impact on margins 

and profits, probably reflecting more intense bank competition in well-developed 

financial systems. 

H6 – There is a negative significant relationship between gross domestic products 

and the performance of banks. 

Inflation 

It is a rate at which the general level of prices for goods and services is rising, and, 

subsequently, purchasing power is falling. Hassan and Bashir (2003) stated that INF and 

its interaction term with GDP is the only significant variable which is observed in ROA. 

Samir (2009) in his study found that inflation rate appears to have an insignificant impact 

on banks’ profitability. 

H7 – There is a negative significant relationship between inflation and the 

performance of banks